Steel companies invest in coal to insure long-term supply

In the steel business, securing coal and iron ore supply is priority No. 1.

So when the coal market tightened up this year because of supply disruptions, steelmakers found a solution: invest in coal companies.
The latest example came Friday, when Russian steel giant OAO Severstal unveiled a $1.3-billion deal to buy out American producer PBS Coals Corp. PBS is close to completing an initial public offering on the Toronto Stock Exchange, but Severstal, just one of a number of companies with its eye on PBS, did not wait around for the IPO to make its move.

“As the coal market improved and the steel companies started to change their view toward securing long-term supply, the intensity of interest on us increased,” PBS chairman Colin Benner said in an interview.

Steel companies are trying to secure supply after prices more than tripled last year because of supply disruptions, most notably flooding in Australia.

“I’ve said that I thought some steel wouldn’t get produced this year because of a shortage of coal,” said Kevin Bambrough, CEO of Sprott Resource. “As you see more and more steel companies trying to vertically integrate, that will tighten up the market even more. The people who used to get PBS’s coal are obviously going to be concerned about losing potential supply.”

Vancouver Sun